I am taking the liberty of posting my Ramblings here as the XJO thread is going to be the guinea-pig for the new system.
Friday night’s trading in New York was one of those sessions that leave chartists almost speechless. How do markets know where exact spots are and then turn around and rally? Really amazing and is what makes this whole thing of trying to predict markets so absolutely addictive.
But I have to say that the stakes are pretty high again here. With the SPX having come back to within a whisker of the line in the sand I have had for the past three weeks and then bouncing, leaves open a couple of alternatives and we are going to have to watch early this week to try and work out which one the market prefers - either it just rallies a bit further with the SPX up to around 1565’ish and then rolls over and breaks down, completing a head and shoulders top – or does it still need to go on and have another move to the upside (new highs for the SPX) while at the same time forming further divergences between the major indices, before rolling over. One thing at the back of my mind is that we really haven’t had enough time up around these lofty levels to be forming major tops. Tops usually demand time for the “smart money” to get out as distinct from major bottoms that are usually accompanied by panics and can turn on a single day’s trading. So if it does break down here, then the correction is likely to be relatively minor and would put in a low before my October time zone – probably August or maybe even sooner.
Needless to say the RUT broke down. Amazing how it had to go back up and have another look at the 942 level which was its lower perimeter and promptly waved it goodbye. Need to give it more time now but if the SPX does go on to form new highs, I think the RUT might be one index that doesn’t confirm the move. However, the long term chart of the RUT is absolutely amazing as it has broken topside out of its old resistance zone (around 850) which I think will now be very good support, so longer term I still like the look of this chart.
Around 9th April has been standing out as important on my cycle chart. I felt this time zone may have meant more volatility and we certainly seem to be seeing that.
And then to just cause more confusion, my Genius Index is back to levels seen at the low last November. This means that a hell of a lot of cash has been raised this past couple of weeks (this figures is calculated at the close of business on Wednesday so they still had a chance to raise more cash by the close of Friday). Normally that would be a very bullish signal and I must say increases the probabilities of the SPX having to go higher – perhaps up into the 1600 to 1620 area.
I mentioned last week how I had never seen such divergences in commodities – so what a week they have now managed to put in. I thought oil was looking overbought so it promptly fell and is now looking oversold. I also thought a sell-off in gold and silver would look good on their charts so of course they had to join in but that fall has now been followed by a sharp rise on Friday. Not all that sure we have seen enough work down here. Would like to see a bit of base building now before I could be completely relaxed about the trend but I must say that, with the short position in silver again back to record levels, we have a potentially very bullish situation starting to build.
Orange juice looks to be breaking topside out of a huge base – so enjoy your juice while you can afford it!!
Also thought the US dollar looked overbought last week but at the end of another week the US dollar index is little changed. However its behaviour is being masked by a big fall in the yen while other currencies have strengthened – so to my eye it all adds up to a weakening US dollar.
No need to be concerned about Japanese investors cashing in their overseas investments at the moment as the yen has collapsed even further this week with the Nikkei heading toward the sky, continuing the zoom it has had since the November low. Overhead resistance doesn’t seem to be worrying those buying shares but I suppose seeing as their market has been going down since the top in 1989, they are probably celebrating a change of sentiment with risk the least of their concerns. Magical to watch but looks to have put in a top at the end of last week.
At the end of the previous week the hourly chart of the XJO was locked in a tight triangle. I mentioned at the time that probably meant it was a fourth wave with a fifth to go. It ended up taking in the count from that triangle almost to the very point. Like everything else in all markets at the moment, it is somewhat “delicately poised”.
One little note of interest and not sure how it will turn out yet -but also last week I was wondering if there was a possibility that we might see some rotation into stocks that have underperformed - on Friday in our market the advance/decline measure of mining stocks actually had a small plus while industrials had a small minus. Can’t see the last time this happened. At this stage, unfortunately, it is only a hint of a change rather than a full on signal.
The local index that has been my favourite for analysis locally – 20 Leaders XTL – is very interesting. I cannot believe that it could have spent four years building a base and then only moved this far. Still looks to me that if it had a correction and then started to build again, it could have another big move. Will just have to wait and see how it all evolves before such a prediction can be made. For that to happen, there must be something out there that we haven’t thought about or it is all going to fail badly. Looks to be no half way marks. I remember thinking when the market built such big tops in 2007/2008 that the market couldn’t possibly take in those counts – it certainly paid to be a believer then and anyone that didn’t paid a heavy price.
Looking at this subject further and using the Commonwealth Bank as an example. It is only one of a handful of majors that has actually gone on to new highs. That means it is now sitting on a zone of trading dating back to 2007 starting from around the 60 dollar mark. I cannot believe that if the price gets back into this support area that the stock could not build on it again. Time will tell.
Investors who have been upset by the correction in our banks this week should bear in mind that the index covering the group went up for 16 consecutive weeks from the November low. I pointed out at the time that I had never seen anything like it so it isn’t surprising that eventually there just had to be some profit taking. At the moment it amounts to no more than a small blip on the longer term charts.
Traders look like having another interesting week. Good luck
